Tuesday, October 24, 2006

Calls of Note Part 1

- Bear Stearns comments on NVIDIA (NASDAQ:NVDA) after Mercury Research released 3Q chipset data on Monday. The key takeaway was NVIDIA's significant share gain, from 12% in 2Q to 17% in 3Q. In AMD chipsets, NVIDIA's share increased from 52% to 61%. NVIDIA also benefited from the overall strength in AMD chipsets, which increased 41% QoQ to 19.6M units, greater than AMD's MPU shipment growth of 18% QoQ to 14.8M units, likely due to Dell preparing for its AMD-based system ramp in 4Q. Overall, NVIDIA's chipset shipments increased 66% QoQ to 12.3M units (98% of which were AMD chipsets).

The data clearly shows that the AMD-ATI merger did not impact NVIDIA's chipset business in 3Q. Based on current design win activity, the firm believes there is unlikely to be any meaningful impact in the next two quarters as well. NVIDIA's share gain in AMD chipsets came at the expense of SIS and ATI, whose shares went from 9% to 3%, and 27% to 23%, respectively. Meanwhile, in the Intel chipset space, ATI's share declined significantly as expected, from 8% to 2%. ATI exiting the Intel chipset market clearly presents an opportunity for NVIDIA to ramp up its Intel chipset business next year.

They remain comfortable with their above-consensus estimates for NVIDIA. Firm reiterates their Outperform rating and $37 price target. Apart from the momentum in chipsets, which they believe is be here to stay and grow, they expect NVIDIA's competitive lead in desktop GPUs to continue into next year and in fact widen, as well as its share gain in notebook GPUs to continue next year. They also expect continued gross margin expansion in upcoming quarters.